Tesco Bank current account offers 3% interest but is it any good? We compare it to interest-paying rivals

The supermarket giant has become the latest challenger bank to launch a current account to rival the best offerings from the High Street banks.

The account offers extra Clubcard points for spending as well as 3 per cent interest on balances of up to £3,000.

Tesco Bank has made it fairly easy for customers to sign up with few restrictions. New customers are not required to swap over any direct debits to the account but it will cost account holders £5 a month for every month they do not deposit £750.

Tesco Bank: The long-awaited current account from the supermarket giant could be a good option for Clubcard users and those who often have cash left over in their current account.

Couples can boost their earnings further by taking out a joint account on top of their personal accounts.

That means they could earn 3 per cent interest across a total £9,000 in three accounts.

Although, for those with a small balance the TSB Classic Plus Account may be a better money-maker paying a higher rate on a smaller balance (see below for the trick).

Interest is paid monthly so it may be worth topping up your account balance with any savings if your balance dips.

Tesco debit cards will double up as Clubcards, earning both standard loyalty points and an extra boosted rate.

Shoppers swiping their debit card will earn an extra point to deliver a total of five points per £4 spent in Tesco stores, online or for non-fuel purchases at a petrol station. Usually you earn four points with a standard Clubcard.

They will also receive one point for every £8 spent elsewhere, plus the usual one point per £3 on petrol.

One point is worth 1p if spent in-store at Tesco and up to 4p if redeemed using Tesco's Clubcard rewards vouchers.

What to watch out for

The account is only worth considering for those certain they can deposit £750 each month otherwise any gains made from interest or Clubcard rewards will be largely eaten up by a £5 monthly fee.

The banking arm of the supermarket giant offers a fairly simple overdraft deal, but it could end up being costly for those who stray into an unauthorised overdraft - these are charged at £5 per day.

That said
the current account does come with an extra control feature that
allows people to elect whether to use their agreed and unagreed
overdraft or not.

It
also has a handy feature that sends a text message or email to notify
them if they have strayed beyond their limit, meaning if customers repay
the amount by 5pm they won’t be charged.

Kevin Mountford, head of banking at MoneySupermarket, says: ' While its approach to overdrafts is transparent, the lack of an ‘interest-free’ buffer means there may be better offerings for those who regularly slip into the red.'

'The arranged overdraft of 18.9 per cent AER is quite high given this is a product which is clearly being targeted at families who are often on tight household budgets.'

Unagreed borrowing is charged at £5 a day, while a payment rejection caused by a lack of funds causes a flat charge of £5.

COULD YOU MAKE MORE MONEY FROM A RIVAL IN-CREDIT INTEREST ACCOUNT?

Over recent months several banking providers have launched new current accounts paying interest on positive balances.

Which account is best for you will depend on several factors - how much cash you keep in your account, the amount you can deposit in the account and whether you are willing to juggle more than one account maximise your interest.

The Club Lloyds account pays tiered interest which means the more money you hold in the account the higher the interest rate your balance will benefit from.

Any amounts held in the account between £1 and £1,999 will earn 1 per cent (AER) interest, once the balance tips over the £2,000 mark the whole balance then benefits from 2 per cent (AER) interest up until it hits £3,999. To get the top rate of 4 per cent you must have between £4,000 and £5,000.

The bank allows one account per person, but savvy couples taking out a joint account could boost their earnings further by taking out two personal accounts plus a joint account.

This could mean they benefit from the 4 per cent rate on a balance of £15,000 if they could keep a balance of £5,000 in each, moving in the required £1,500 minimum deposit each month.

On top of that account holders have access to a regular savings account paying 4 per cent on up to £400 a month - meaning an extra £103 in interest.

This technically means a couple with three current accounts, and three regular saver accounts could potentially collect £909 in interest each year.

However this would mean having a spare £29,400 lying around and having the discipline to move cash between several accounts to pay in the minimum monthly current account deposit of £1,500.

For those with a higher balance in their bank account, the Santander's 123 current account could be a better option, as it pays interest on larger balances than both TSB and Lloyds.

It pays interest of 1 per cent (AER) on your entire balance once you hit £1,000 or over, a 2 per cent (AER) is then applied to the whole balance once you reach £2,000 or over and the 3 per cent rate (AER) kicks in across the whole balance above £3,000 and up to a maximum of £20,000.

Account holders also benefit from up to 3 per cent monthly cashback on key services such as mortgage payments, council tax bills, electricity, gas, mobile and home phone, broadband and TV packages. But the account comes with a £2 monthly fee, eating into savings returns.

Any others?

Nationwide's Flex Direct pays out 5 per cent in-credit interest on balances up to £2,500 - but it is only for the first year. It also requires a monthly deposit of £1,000.

Halifax's Reward Account offers an alternative for those looking for an interest-paying current account as it offers a cash incentive to join and £5 per month. It also pays switchers £100 to make the move.